At a time when dwindling demand for bank credit has capped the growth in interest income from advances, earnings from fees and commissions aided private sector lenders in improving their profitability in the fourth quarter of the last financial year.
HDFC Bank, the second largest in the private sector, reported 30 per cent year-on-year growth in its net profit in the January-March quarter. The year-on-year growth in the lender's fee income outpaced its net interest income expansion during this period. While the bank's fee income grew 24 per cent, its net interest income was up 19 per cent.
“The growth in our fee income has been fairly broad-based. The growth has come from transaction banking, cash management, trade and merchant banking operations,” said Paresh Sukthankar, executive director and chief financial officer.
For Axis Bank, while the growth in overall fee income was muted at eight per cent, its retail and business banking fees increased significantly during the quarter. The lender reported 25 per cent year-on-year rise in net profit. Besides net interest income, the key drivers to the bank's profit growth were retail banking fees, up 21 per cent, and business banking fees that expanded 20 per cent. Fee income from the farm and small and medium enterprises (SME) sectors also grew at 18 per cent. However, a decline in earnings from treasury, equity and debt markets businesses capped the overall growth in fee income.
ICICI Bank, the largest private sector lender in the country, is one of the few that saw a decline in its fee income during the fourth quarter of the last financial year. Fee income fell 3.5 per cent year-on-year during the three-month period.
“The continued moderation in fee income growth was primarily on account of corporate banking fee income, which remains impacted by the slowdown in new projects and financial closures. In the fourth quarter, there was continued momentum in granular fee income streams such as foreign exchange and derivative fees, transaction banking fees and remittance fees. The bank will continue to focus on these revenue streams,” said a senior official of the bank.
Even for mid-sized private sector banks, non-interest income was the key reason for profit growth in the January-March quarter. IndusInd Bank's net profit during the quarter expanded 30 per cent from a year before. Its core fee income grew at a faster pace during this period and surged 60 per cent year-on-year.
“IndusInd’s superior margins, focused fee income strategy and control over cost-to-income ratio will keep core operating profitability strong...Levers for margin improvement and strong fee income growth will keep return on assets strong at 1.6-plus per cent over financial years 2012-14,” said Alpesh Mehta, banking analyst with Motilal Oswal Securities.
For YES Bank, earnings from fees and commissions was up 31 per cent, helping it report 34 per cent growth in net profit.
Industry analysts and bankers said lenders were focusing more on core operations like transaction banking and cash management in the current uncertain macro-economic environment. This resulted in the sharp rise in fee income for most private sector banks.